David Tepper Sold Financials As He Gave His 'Everything Will Go Up' Speech

Appaloosa Management, the $14 billion hedge fund firm run by David Tepper, sold large amounts of financial sector stocks in the third quarter of this year—a period during which he appeared on CNBC’s Squawk Box to argue that stocks were attractive whether the economy slumped or improved.

The timing of the stock sales with Tepper's bullish remarks, revealed in Appaloosa's third quarter 2010 13F with the SEC, raised some eyebrows across financial blogs and on Wall Street. Was Tepper pulling a fast one?

In Tepper's just released Q3 13F, the Appaloosa fund manager disclosed that in the quarter ended September 30, one week after his pompous, self-serving speech on CNBC served as a reason to pump the market up by almost 2%, he sold 18% of his BofA holdings (his largest holding both at June 30 and September 30), 11% of Citi, 19% of Wells Fargo, 19% of Fifth Third, 19% of Capital One, 75% of his then $157 million Hartford Financial position, and lighten up on pretty much all of his other financial positions. And congratulations to CNBC for serving as the medium which David Tepper manipulated to his advantage and dump about 20% of his financial stake, which as of June 30 was his biggest, at 56% of total holdings.

Fortunately for Tepper, this appears to be an unfounded accusation.

Tepper’s bullish call on the market may have led to a lot of buying of a variety of financial assets. Stocks moved so hard to the upside that day that a lot of people started talking about the "tepper Rally." But he did not recommend buying financial stocks. In fact, he said his firm was selling shares of financial companies.

“We’re not that big in financials right now. I think they are—the equities you are speaking of—about 10% of our portfolio,” Tepper said on September 24.

Tepper went on to explain that Appaloosa found itself owning a large amount of common stock—despite the fund’s focus on bonds—because it had purchased preferred stock that was later converted to common. The firm, he said, had once had as much as around 20% of it’s portfolio in financial company stocks.

In other words, Tepper told us that his firm was doing just what the quarterly filing reveals—it was selling financial company stocks. Appaloosa’s third quarter—the one covered by the controversial filing—ended on September 30th.

“So you are not crazy about them now?” Joe Kernen asked.

“I don’t hate them. I just think they are as good as anything in the market,” Tepper replied.

Let’s go to the video tape.

This is the second half of Tepper’s Squawk Box interview. (The discussion of Tepper’s “exit strategy” from his position long banking stocks begins about one minute and 45 seconds in.)

On a personal note, let me add that I haven’t spoken to Tepper about this. In fact, I’ve never spoken to Tepper. No one at SquawkBox or CNBC asked me to defend Tepper’s SquawkBox interview. In fact, when I set out to write about Tepper’s stock sales I fully expected to be writing an entirely different piece warning about following the advice of money managers who should probably always be assumed to be talking their book.

But the charge of manipulation here doesn’t work. Tepper told us he was selling down his financial position and Appaloosa’s filing reveals that’s what happened.

__________________________________________________________Companies mentioned in this post